Pay off mortgage with student bursary?

Suzkin

Dear All,

Please would you advise me if this idea is (a) financially sound in saving money and (b) legal.

I am starting a full time three year course this Oct and receive a bursary (i.e. grant that I do not need to repay). I am told I can use this money however I want (i.e. for the £3k per year tuition fees, which I know I'll have to pay, as I already have a first degree..).

My mortgage is fairly small (about £17.5k) and I live on my own, so my only source of income, is me! This is what I am thinking: use my savings so far (about £16k), with £1.5k of my bursary/maintenance loan to clear the mortgage.

Students in full time education do not pay council tax. With no Council Tax and also no mortgage, my monthly outgoings would be substantially reduced to just less than £100 per month. If I save my bursary/maintenance loan as much as I can (and live a frugal life..), I could save about £5k per year.

This means over the life of a 3 year course, I could be saving approx. £15k. BUT, overall my student maintenance loan would work out about this much (£4,500 per year x 3 years) BUT at least it would at a lower interest rate (that of inflation) than my mortgage (currently 5.55%).

Having said this, these figures do not consider over the 3 years: national insurance contributions, mini-cash ISA every year, nor contributions to a stakeholder pension.

However, I figure that I would be better off all round, as I would have a new life-long career if all goes well, which will also hopefully give me a decent wage. Plus all my debt will consist of the student loan only, and repayments depend on a threshold of income.

This would seem much better than having at the end of the course not only about £14k the mortgage to pay (the balance would have hardly moved), but also £13.5k of the student loan.

Does this make sense? Is there any faulty thinking here? On principle, would I be saving money? Your comments would be very welcome. Thank you.

Kaz2904

Are you sure that you would not pay any council tax? I thought you only got one discount.
Other than the rest- I'm muddled tbh.

JonnyBravo

Suzkin wrote: »

Dear All,

Please would you advise me if this idea is (a) financially sound in saving money and (b) legal.

I am starting a full time three year course this Oct and receive a bursary (i.e. grant that I do not need to repay). I am told I can use this money however I want (i.e. for the £3k per year tuition fees, which I know I'll have to pay, as I already have a first degree..).

My mortgage is fairly small (about £17.5k) and I live on my own, so my only source of income, is me! This is what I am thinking: use my savings so far (about £16k), with £1.5k of my bursary/maintenance loan to clear the mortgage.

Students in full time education do not pay council tax. With no Council Tax and also no mortgage, my monthly outgoings would be substantially reduced to just less than £100 per month. If I save my bursary/maintenance loan as much as I can (and live a frugal life..), I could save about £5k per year.

This means over the life of a 3 year course, I could be saving approx. £15k. BUT, overall my student maintenance loan would work out about this much (£4,500 per year x 3 years) BUT at least it would at a lower interest rate (that of inflation) than my mortgage (currently 5.55%).

Having said this, these figures do not consider over the 3 years: national insurance contributions, mini-cash ISA every year, nor contributions to a stakeholder pension.

However, I figure that I would be better off all round, as I would have a new life-long career if all goes well, which will also hopefully give me a decent wage. Plus all my debt will consist of the student loan only, and repayments depend on a threshold of income.

This would seem much better than having at the end of the course not only about £14k the mortgage to pay (the balance would have hardly moved), but also £13.5k of the student loan.

Does this make sense? Is there any faulty thinking here? On principle, would I be saving money? Your comments would be very welcome. Thank you.

Your logic is largely sound, yes.
A couple of things to think about.
Yes you could do better with using your mini cash ISA for some of your money but this is going to be marginal over the 3 years, with some of it doing slightly worse than your mortgage perhaps.

Much more importantly than that..... do you think youll need your £16k savings for anything? Whilst it's in your account/ISA's it's available for emergencies or perhaps when you decide you want a larger house, or to buy a car, etc etc at the end of your course?

I would let this guide me more than my thoughts of interest rates, as, if you save your £16k smartly over the 3 years you won't be too far off the interest you'll pay in your mortgage.

Suzkin

Ah, yes, wise words JonnyBravo thank you, although if I live a frugal life, I still will be saving some of the bursary/maintenance loan over the 3 years (about 12-15k), and so this would pay for any car etc. at the end of the course.

Kaz: All full time students in higher education are exempt from Council Tax, especially as I live alone. I would need to submit a Council Tax exemption form to the Council each year, as issued by the educational establishment.

rjm2k1

I don't think there's a correct answer really, but some more info...

You may well need some money set aside for the unexpected.

Are your savings all in an ISA and therefore tax free? If so, remember that once you remove them it will take years to replace that tax free money. Also, what's the tax situation of your bursary, does it count as income? If not then it may be that your non-isa accounts can be switched to gross payments if your income is below the taxable threshold, but not sure about that.

In the same sentence you say the you hope to have a well paid job at the end of it but then say that student loan repayments are based on income suggesting that you think you will be low income and therefore not have to repay the loan soon!


An alternative (assuming your savings are mostly tax free) is to stay as you are but rather than using your bursary to rebuild your savings, use it to overpay your mortgage if that's allowed, or do a combination of both.

Not quite sure why you would think any of what you suggest may be illegal!

Suzkin

Hi Rjm, thanks for your comments. Nearly all my funds are in ISAs (I have 3 ISAs, with about £2k interest on them overall), and £5k in savings. I don't think the bursary counts as taxable income, although I'll need to check this...

Yes - I am hoping for a well paid job (of course) and £20k per year would be great, BUT what I mean, is that the student loan that needs repaying is a separate and manageable debt (I simply HATE debt!) with an interest rate far lower (well at the moment, anyway) than a mortgage interest rate debt/loan.

I'm already overpaying on my mortgage and the amount is capped. I'm actually paying the limit before penalties are imposed.

I wondered if it's legal, as I'm not sure if government (i.e. student) loans and grants come with conditions attached, but they say the bursary can be spent in any way I like.

Kaz2904

I'm aware that you are entitled to a reduction in council tax but wasn't sure if you were still able to get it free (DH was working when I was a student so I missed out!).

I'm guessing that you are doing some form of nursing/midwifery as it's the only course I'm aware of with a bursary. Any income is taxable it is just that you don't usually earn enough as a student to breach your tax limit. Will you be working as well as studying? If you are then you will pay NI from your wages
It is quite possible to get through the 3 year course without a student loan (we weren't allowed to have loans when I trained). I had an £800 overdraft which was opened up 2 months before I qualified (as our sofa broke beyond repair so had to be replaced!).
Good luck with your studying.

I think having re-read this I would want to pay off my mortgage for the psychological issue of knowing that I didn't have to find the mortgage money every month.
I would use the bursary to live on and if needed would then apply for the loan.
TTFN, K.